Home buying with friends.

If you are looking into buying a home but don’t think you can afford it on your own, investing with a friend or friends may be the right choice for you.

When seeking mortgage finance with others, it’s also important to ensure that everyone involved has a good credit rating. If they don’t when buying a home, your ability to secure a suitable mortgage may be affected – despite your combined income and borrowing power, lenders are likely to see you as a greater risk.

Keeping Costs Down – By opting for co-ownership of a home, you are reducing your own initial financial outlay. Costs such as stamp duty and legal fees – not to mention household bills – can be hugely expensive for one person to manage on their own. Through buying with friends, these costs are spread out, thus reducing the burden on everyone involved.

Perhaps most importantly, your money is not simply going towards rent, but to ownership of the property. It is a much-touted cliche that “rent money is dead money”, but there is an element of truth in the statement.

Invest Wisely – When considering buying a property, it’s important to view it in terms of an investment rather than a home, with your friend/s as a business partner in an investment company.This applies to buying a home with one or more of your friends, even if the arrangement is less formal.

While you may be good friends with the person involved, it is unlikely that you will both live out your years and grow old together. It is unwise to assume that you will be living there for the next 20-30 years, as might occur with a more traditional ‘family home’. Life circumstances could change for either of you, and it is likely that the house will eventually be sold – maybe to you, to one of the other business partners, or to a completely new buyer.

With this in mind, when home buying it is best to look for a property that will appreciate value at a relatively fast rate, enabling the parties involved to recoup their costs.

Buyer Beware – Before investing in a property with any friend, make sure you have a reasonable idea of their financial habits and personality. Living with a friend is a very different experience to seeing them in purely social situations.

Make sure arrangements such as household expenses – e.g. bills, maintenance, and food – are discussed before entering into a financial agreement. This agreement doesn’t need to be a written one, but it is worthwhile having a formal understanding between all the parties involved. Doing so will help avoid conflict further down the line, which might otherwise hinder the friendship and business transaction.

Although people will generally go into such agreements with the best of intentions, things can turn nasty if money is involved – particularly large sums of money.  For this reason, it’s best to make sure that your co-ownership agreement has very specific terms. It should cover significant details, such as what will happen if one party defaults on their mortgage payments or if one person wants to sell their share of the house.

BuyingAdditionally, your agreement should also detail what will occur if one of the parties dies during the term of co-ownership. It is important to specify that you and your friend/s are ‘tenants-in-common’. If you do not, ownership could potentially pass to your co-owners if you die. While this is fine for husband and wife situations, it is not typically appropriate for co-investors.

Buying a house with friends may not be ideal for everyone, but it’s an option worth considering for those who feel that they are currently priced out of the housing market. As long as everyone’s interests are secured in the best ways possible, it can be a viable option for those looking to buy.